Microsoft reported Q2 FY2026 revenue up 16.8% year-over-year and non-GAAP EPS rising 24%, comfortably exceeding consensus. Azure growth decelerated marginally to 39% from 40% in Q1, but remains the principal driver of cloud revenue. Management highlighted a $625 billion order backlog, of which roughly 45% is tied to AI workloads with OpenAI—underscoring both massive future demand and increasing concentration risk in one partner. Despite the strong beat, investors noted that $37.5 billion in Q2 capital expenditures went largely toward cutting-edge GPUs that cannot yet be deployed due to regional power-grid constraints.

On January 29, Microsoft shares fell nearly 10% despite beating earnings, erasing roughly $357 billion in market value in a single session. Traders cited CEO Satya Nadella’s admission that power-capacity shortages have left AI chips idle in warehouses, delaying deployment of paid workloads. With the stock now trading at about a 10% valuation discount to peer multiple averages (P/E ~28.2 on non-GAAP earnings), many analysts and long-term holders regard this as an attractive entry point—particularly after an 11% slide in the first month of 2026.

Investors are growing wary of Microsoft’s AI strategy: nearly half its multi-year backlog flows from OpenAI, creating client-concentration and execution risk if that partnership sours or slows. Independent analysts calculate that every one-point drop in Azure growth can shave hundreds of millions off quarterly profit, given elevated AI infrastructure spending. While some portfolio managers still rate the stock “better than average” for its entrenched enterprise relationships and free-cash-flow generation, others caution that Microsoft must secure long-term power purchase and grid-upgrade agreements to fully realize its AI investment.

In a high-profile move, Peter Thiel sold 537,742 shares of Nvidia and used proceeds to acquire 49,000 Microsoft shares—boosting his Microsoft weighting to 34% of his public-stock portfolio. Meanwhile, software-focused ETFs have seen outflows as sector-wide valuations adjust to AI execution realities. Nonetheless, several large tech-focused funds have initiated small net purchases of Microsoft in recent weeks, reflecting a bifurcated institutional view: some chase the post-dip rally while others remain cautious until power-supply and execution metrics improve.